Скачать или смотреть How Safe is Philip Morris International's Dividend?

In this video, we perform a deep dive on Philip Morris International’s dividend safety.

To begin, let’s talk about Philip Morris International’s business model. Philip Morris is a tobacco company that came into existence when its parent company Altria spun off its international operations. Philip Morris International sells cigarette brands such as Marlboro in countries outside of the United States.

For many years, Altria and Philip Morris had been one of the world’s most well-known blue chip stocks because of its remarkable performance. You can view our full list of blue chip stocks here: https://www.suredividend.com/blue-chi...

The company has been one of the best-performing stocks over the last five decade. Both stocks are also popular among income investors because of its exceptionally high dividend yield. Each trades with a yield above 5% today. You can view our full list of high dividend stocks here: https://www.suredividend.com/high-div...

Looking ahead, Philip Morris International’s high dividend yield has led many investors to question the safety of its future dividend payments. For the remainder of this video, we will discuss the company’s current dividend safety from four perspectives: it’s dividend safety in the context of its current earnings, its dividend safety in the context of its current free cash flow, its dividend safety in the context of its recession performance, and its dividend safety in the context of its current debt load.

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When Philip Morris International executives presented at the company’s Investor Day on September 27th, the company narrowed its financial guidance for fiscal 2018. Philip Morris International now expects to generate earnings-per-share between $4.97 and $5.02.

For context, Philip Morris currently pays a quarterly dividend of $1.14 per share. This implies a dividend payout ratio of 91% using the midpoint ($4.99) of the company’s 2018 earnings guidance.

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Many analysts believe that comparing a company’s dividend payments to its free cash flow is a better method for assessing dividend safety. Accordingly, we will now compare Philip Morris International’s current dividend payment to its free cash flow.

On July 19th, 2018, Philips Morris International reported financial results for the second quarter of fiscal 2018. The company’s earnings release included full-year guidance for both operating cash flow and capital expenditures. More specifically, Philip Morris International guided for operating cash flow of approximately $9 billion and capital expenditures of approximately $1.5 billion. Taking the difference between these two figures, we arrive at a free cash flow estimate of $7.5 billion.

For context, Philip Morris International currently has about 1.5 billion shares outstanding, which implies full-year dividend payments that total $6.8 billion. Combining this full-year dividend estimate with the company’s implied free cash flow guidance gives a free cash flow payout ratio of 91% - which is the same as the company’s payout ratio using earnings-per-share.

Using free cash flow, our conclusion is the same: Philip Morris International’s dividend is safe right now, but any meaningful downturn in operating performance could lead to a dividend cut.

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Companies do not cut their dividends in the good times. Instead, dividends are reduced when companies experience financial difficulties. Accordingly, this section will analyze Philip Morris International’s current dividend safety in the context of the company’s historical recession performance.

We believe that the best way to measure a company’s recession resiliency is by measuring its earnings-per-share performance during the financial crisis that occurred between 2007 and 2009. Philip Morris International’s performance during this time period is shown here.

2008 earnings-per-share: $3.32
2009 earnings-per-share: $3.24
2010 earnings-per-share: $3.92

As you can see, Philip Morris International’s earnings-per-share were minimally affected by the financial crisis. We have no concerns about the company’s ability to pay its dividends through future downturns.

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The last angle that we will use to assess Philip Morris International’s current dividend safety is by looking at the company’s current debt level.

At the end of the most recent reporting period, Philip Morris International had $31 billion of debt outstanding. The company generated $877 million of interest expense over the last four quarters, which implies a weighted average interest rate of 2.8%.

The image in the video shows how changes to Philip Morris International’s weighted average interest rate would impact the company’s dividend coverage, as measured by free cash flow.

As the image shows, Philip Morris International’s weighted average interest rate would need to rise to around 8% before its dividend would no longer be covered by free cash flow.